Question 03 Bahria Orchard is establishing a sugar mill with the resources from its estate business. The initial investment required for the sugar mill is land costs of $150,000, raw material of $250,000, working capital of $760,000, construction costs of $650,000 and estimated hidden costs of $300,000. Įt is expected that the revenue from the mill will reach up to $1,050,000 per year. The annual expenses for labor, electricity, fuel and other items will sum up to $375,000 per year. The raw materials worth $150,000 and the hidden costs worth $250,000 remains unused by the end of 15 years (Hint: Salvage values). If the company requires an MARR of 9% on return, determine if it should invest in this mill? Use AW method to support your argument. Verify your argument using PW or FW method.

Question 03 Bahria Orchard is establishing a sugar mill with the resources from its estate business. The initial investment required for the sugar mill is land costs of $150,000, raw material of $250,000, working capital of $760,000, construction costs of $650,000 and estimated hidden costs of $300,000. Įt is expected that the revenue from the mill will reach up to $1,050,000 per year. The annual expenses for labor, electricity, fuel and other items will sum up to $375,000 per year. The raw materials worth $150,000 and the hidden costs worth $250,000 remains unused by the end of 15 years (Hint: Salvage values). If the company requires an MARR of 9% on return, determine if it should invest in this mill? Use AW method to support your argument. Verify your argument using PW or FW method.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter9: Capital Budgeting Techniques

Section: Chapter Questions

Problem 12PROB

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